Post by beechside on Feb 28, 2016 11:48:01 GMT
Forgive the ramblings but I would appreciate the experiences of some of the more experienced investors on this forum.
It's generally considered a good thing to diversify one's investments but do the same rules apply in asset-backed P2P?
Some assumptions (just for the sake of this argument):
* Non-speculative property LTV of 70%
* Doesn't rely on PP being awarded at some point in the future
* Interest of 10% paid to the lender
* No personal guarantee or other dodgy security
* "True" P2P (i.e. not lending to a middle-man company)
* Sensible levels of due diligence on a loan
Were I to invest in a property fund and the property sector took a bath (say down 30%) then I would lose a straight 30% on my fund valuation.
However, had I invested in property-backed P2P, my exposure would be covered, since it's the borrower, not the lender, who loses the 30% should there be default at the end of a loan. Moreover I've made 10% in interest payments.
So, were a loan to default and the property to sell for 60% of the original valuation, I would be financially neutral, while those in a property fund would be feeling very glum.
The last big property nose dive in the UK was about 25% (according to the Halifax index), although Dublin did see a fall of about 50-60% at its worst, albeit Dublin was madly inflated, a bit like London.
So, putting this together, it seems to me that the only risk worth considering is platform failure (incompetence or fraud). Yes, this has happened: Equitable Life (Insurance), TrustBuddy (P2P), various Ponzi schemes (Investment funds), Lehman Brothers (Banking) and so on.
If we are using true P2P (i.e. managed lending directly to the borrower) then even platform failure is not a 100% loss, though the cost of administration, loan recovery, arguments over IP in IT systems & data and so on could eat into recovered money.
Assuming we diversify across platforms, P2P seems a much safer option than straightforward investment trusts & funds, savings policies, stocks & shares etc.
Tulip mania, South Sea Bubble, Dot Com crisis and even the more recent credit crunch are not the same – none of them were asset-backed following my assumptions above.
Please try to convince me why I should not put two-thirds or more of my investments into P2P. I'm unconvinced by the perceived wisdom statements ("no more than you can afford to lose", "no more than 15% in any 1 sector", "it's a new and unproven vehicle" and so on) because they are not based on evidence.
FSCS is not helpful for those of us looking to turn pension funds into an income, since we rely on dividends and growth, neither of which come with savings accounts in banks.
I'd be very interested to hear your opinions. Thanks!
It's generally considered a good thing to diversify one's investments but do the same rules apply in asset-backed P2P?
Some assumptions (just for the sake of this argument):
* Non-speculative property LTV of 70%
* Doesn't rely on PP being awarded at some point in the future
* Interest of 10% paid to the lender
* No personal guarantee or other dodgy security
* "True" P2P (i.e. not lending to a middle-man company)
* Sensible levels of due diligence on a loan
Were I to invest in a property fund and the property sector took a bath (say down 30%) then I would lose a straight 30% on my fund valuation.
However, had I invested in property-backed P2P, my exposure would be covered, since it's the borrower, not the lender, who loses the 30% should there be default at the end of a loan. Moreover I've made 10% in interest payments.
So, were a loan to default and the property to sell for 60% of the original valuation, I would be financially neutral, while those in a property fund would be feeling very glum.
The last big property nose dive in the UK was about 25% (according to the Halifax index), although Dublin did see a fall of about 50-60% at its worst, albeit Dublin was madly inflated, a bit like London.
So, putting this together, it seems to me that the only risk worth considering is platform failure (incompetence or fraud). Yes, this has happened: Equitable Life (Insurance), TrustBuddy (P2P), various Ponzi schemes (Investment funds), Lehman Brothers (Banking) and so on.
If we are using true P2P (i.e. managed lending directly to the borrower) then even platform failure is not a 100% loss, though the cost of administration, loan recovery, arguments over IP in IT systems & data and so on could eat into recovered money.
Assuming we diversify across platforms, P2P seems a much safer option than straightforward investment trusts & funds, savings policies, stocks & shares etc.
Tulip mania, South Sea Bubble, Dot Com crisis and even the more recent credit crunch are not the same – none of them were asset-backed following my assumptions above.
Please try to convince me why I should not put two-thirds or more of my investments into P2P. I'm unconvinced by the perceived wisdom statements ("no more than you can afford to lose", "no more than 15% in any 1 sector", "it's a new and unproven vehicle" and so on) because they are not based on evidence.
FSCS is not helpful for those of us looking to turn pension funds into an income, since we rely on dividends and growth, neither of which come with savings accounts in banks.
I'd be very interested to hear your opinions. Thanks!
